8/11/1999 @ 12:00AM

Narus knows what you are doing on the network

The office of Mark Stone, the 35-year-old president of Narus, a Redwood City, Calif.-based telecommunications startup, overlooks a yacht club. On the rare occasion that he looks up from his keyboard, he sees sailboats passing by and wonders where they are headed.

Ironically, he asks the same questions about the traffic flowing through networks. Is the traffic video, data or voice? Where is the traffic originating from and where is it going? When he asks these questions, Narus’ software is able to give him the answers. Narus is derived from the Latin word “gnarus,” which means “all knowing.”

“Right now it is very hard to figure out what kind of traffic is flowing over a network, because it is all in the form of data packets,” says Stone, who in a previous life worked at the strategy firm Boston Consulting Group.

Stone and Narus founder (and now chief executive) Ori Cohen are convinced that it is critical for the new-generation telecos and Internet service providers to know exactly what type of traffic is flowing on their networks.

“Right now it is very hard to figure out what kind of traffic is flowing over a network.”

“At present all traffic, regardless of its nature, is lumped together in one category and these new types of service providers charge a single flat rate,” says Stone.

This is an inefficient business model in the era of the packet-switched network. In the older circuit-switched networks, a fixed circuit was established every time a phone call was made. In other words, Ma Bell could easily figure out who you were calling and then charge accordingly.

However, in the new packet-switched networks, all types of data are chopped into smaller packets and capturing data is very hard. As a result, ISPs and new-generation telecos, collectively known as “full service providers (FSP),” are forced to charge a flat rate. Without a way to charge a premium for premium services (such as video or voice-over IP) the network operators cannot make the money necessary to maintain, upgrade and ultimately profit from their businesses. On the consumer end, the guy who uses the network to send a handful of E-mails pays as much as the guy logging on to check out the Victoria’s Secret fashion show.

Narus has come up with a way to distinguish between the various packet types (such as video or voice) and then send that information straight into a database for billing purposes. The idea for this software came to Cohen when he was working for VDOnet, an Israeli video streaming software company. Cohen, a 33-year-old Israeli immigrant discovered that ISPs were reluctant to deploy streaming video products, because there was no way to bill the customers.

Cohen saw an opportunity, and he left to start Narus about 3 years ago. The company has labored in anonymity for almost two and a half years, even though it has raised $30 million in two rounds from investors such as the Mayfield Fund, Chase Capital and Walden Ventures. The end result of all those efforts is a software called Semantic Traffic Analysis (STA), which runs on powerful Sun
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workstations, operating like a web probe that is hooked straight into the network.

For example, if someone in San Francisco makes a video conference call to New York and London, the probe captures the exact length of the call and then sends a log file, also known as a call data record (CDR) back to the database, which is housed on Narus’ servers. The CDR is then used for billing purposes.

Want to know what Narus software can do? It can find out how much time you spent on the network, how many E-mails you sent, how long you played online video games, how many files you uploaded or downloaded and what web sites you accessed. “The idea is that a guy who sends only E-mails shouldn’t be billed as much as the guy who is streaming video off the Internet,” asks Stone.

Narus’ software has the ability to capture thousands of such CDRs simultaneously. Soon it will be able to capture millions of these CDRs in real time, making it ideal for the super-fast fiber optic networks being built by companies like Qwest Communications
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and Level One
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.

The demand for such billing software is going to increase from a mere $300 million in 1999 to over $1 billion in 2002, according to the Gartner Group, a Stamford, Conn.-based research firm. Such numbers are attracting a lot of attention. Several other companies, including startups such as XACCT and technology giants like Hewlett-Packard
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and Telcordia (formerly BellCore), are trying to push their solutions for IP-billing and the mediation market.

“The idea is that a guy who sends only E-mails shouldn’t be billed as much as the guy who is streaming video off the Internet.”

Stone and Cohen know that in order to distinguish themselves from the masses, they have to offer a unique solution. They think that Narus Intelligence, a software tool that can analyze the data that has been collected, is the answer. The collated CDR information can be put through an analyzer, just like in any normal database.

“It is not just billing, it is much more than billing,” says Stone. By mining the data collected, service providers can offer special deals suited to each consumer’s usage patterns. “If you only use the network for E-mail, wouldn’t it be nice to pay only $2.95 a month,” says Stone. If Narus’ product catches on, then you can very soon kiss that $19.95 all-you-can-eat Internet access good-bye.

Gartner Group senior analyst Chris Ransom is duly impressed by this vision, and points out that there is a critical difference between Narus and all the other companies competing in the marketplace. “Utilization of the data from a marketing and sales point of view is an extremely powerful selling point,” says Ransom. So far, Narus has snagged four major customers, two of which are likely to be TCI and Frontier, according to industry insiders.

“Everyone in this mediation business is playing their cards very close to their chest,” says Ransom, who thinks that Narus’ technology is attractive enough for a large company such as Lucent Technologies
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to snap up this promising startup.

Not necessarily a bad deal. Maybe Stone and Cohen will get the chance to sail one of those boats after all.